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Goldman’s $450 million investment in Facebook is a
win/win for both companies as the smartest investment bank on
the planet is effectively partnered with the most
transformational internet company the world has ever
seen.

While we believe Facebook could be free cash flow
positive in 2011, even as it rapidly scales its cap-ex, the
investment gives Facebook ample cash to accelerate its pace of
acquisitions for both the technologies and talent it needs to
continue to drive its growth.

Facebook will now also be receiving advice from Goldman
who will help Facebook acquire the right companies, the right
talent, and partner with the right companies around the
world.

Goldman is also a huge winner as it now gets a seat at
the table as Facebook strategizes who to acquire, partner with
and hire. Goldman’s reputation is also enhanced as it’s
seen as Facebook’s banker. Goldman also gets a 15%+
discount on Facebook shares relative to where its trading at in
the increasingly liquid private market, and a 50% discount to
where we think Facebook would trade if it were public.

We believe social media will continue to emerge as an
increasingly critical part of every advertisers marketing
campaign, to the benefit of Facebook and hundreds of other
companies providing unique ways to reach, enable, and engage
the global audience immersed in social media.

After more than tripling revenue in 2010, to almost $2 billion
(in our estimate), we believe Facebook is poised to more than
double revenue to $4 billion+ in 2011. We believe this growth is
coming largely from offline budgets, with the rest coming from
online display budgets that would have been spent on other
leading online properties.

We estimate Facebook could generate $1B+ in EBITDA from $4
billion in revenue, but will likely have $1B+ in capital
expenditures as it continues to ramp its infrastructure to meet
unprecedented demand. Therefore, the $500 million investment
announced today, as well as the reported additional $1.5 billion
to be raised by Goldman, positions Facebook to both invest in its
infrastructure as well as acquire the technology and talent it
will increasingly need as it continues to scale its operations
and enhance its technology at a pace the world has never seen.

It’s interesting to note that in a recent poll conducted by
Covario, a leading search marketing platform, showed that 95% of
search marketers are advertising on Facebook, and they are
budgeting “10-20% of their paid search advertising” for running
ads on the Facebook social media platform in 2011. The budgets
are coming from the display mix, not from paid search budgets,
and the budgets are increasingly global.

We believe the $50 billion valuation is attractive for Goldman as
it is at a 15%+ discount to the latest auctions run by
SecondMarket and Sharespost in December, which both valued
Facebook at over $60 billion. The ramp in Facebook’s value
accelerated in the last few months as the private auctions became
more transparent:

SecondShares

In our recently conducted bi-monthly poll of 2,500 U.S. consumers
18+ (to be released in detail later this week), everything
continues to go up and to the right for Facebook, as Facebook
memberships continues to grow (at a 22% CAGR the last two
months), and the percentage of people logging in every day also
continues to grow (at an 11% CAGR the last two
months).

SecondShares

Lastly, while members are on Facebook, they are increasingly
engaged with marketers/brands, which bodes well for future
Facebook monetization opportunities. In fact, as the chart
below indicates, our research indicates that Facebook recently
passed a milestone with more than half of all U.S. adult
members now fans of a brand.